Match Group Inc (MTCH) 2007 Q1 法說會逐字稿

Good morning, ladies and gentlemen, and thank you for standing by.

Welcome to the IAC first-quarter earnings conference call.

During today's presentation, all parties will be in a listen-only mode.

Following the presentation, the conference will be open for questions.

(OPERATOR INSTRUCTIONS).

This conference is being recorded Thursday, May 3, 2007.

I would now like to turn the conference over to Tom McInerney, Executive Vice President and Chief Financial Officer of IAC.

Please go ahead, sir.

Thanks, operator, and thank you, everyone, for joining us today.

During this call, we may discuss our outlook for future performance.

These forward-looking statements typically are preceded by words such as we expect, we believe, we anticipate or similar statements.

Also, you are aware that there are risks and uncertainties associated with these forward-looking statements and our results could be materially different from the views expressed today.

Some of these risks have been set forth in our earnings release filed earlier today with the SEC and our other publicly filed reports.

We will also discuss certain non-GAAP measures.

I refer you to our press release and the Investor Relations section of our website for all comparable GAAP measures and full reconciliations.

I will highlight a few items in our financial results before turning it over to Doug and Barry.

One quick comment -- in most cases, we have changed our segment names from generic to the appropriate brand name.

Example -- what was once called Ticketing is now called Ticketmaster.

This is formatting only, and we think will be clearer, but in no segment has it changed in any way the business composition of what's in there.

Our results in Q1 were mixed.

The tables in the release lay out the numbers clearly, and I don't want to bore you all with a repetitious reading, but you will see a very good quarter in most of our principal businesses, including Ticketmaster, ServiceMagic, Interval, Match, and our media and advertising business, including Ask.

HSN and LendingTree had challenging quarters, particularly on the margin side, and this drove consolidated operating income before amortization to be down modestly year over year.

With a slightly lower effect of tax rate as compared to last year and a lower share count, adjusted EPS was up 8% year over year.

Let's turn to U.S.

retailing and HSN.

Doug will expand on the status of the initiatives to turn the business around, but let me make some comments on the numbers.

HSN's top line declined 1%, but this includes the effect of the shutdown of America's Store, a nonstrategic secondary channel that we exited over the course of the quarter.

Excluding America's Store in both periods, HSN's top line grew 1%.

Profit at HSN declined in the quarter due to a variety of factors.

Gross profit margins declined 182 basis points due to a combination of higher inventory reserves, lower product margins and higher markdowns and shipping costs.

The lower product margins were a function of some strategic decisions and calculated risk-taking to test new merchandise lines, consistent with trying to re-energize the business, as well as some operational mistakes as our new team learned the nuances of the TV shopping business.

The only part of the gross profit pressure in Q1 that we see as continuing indefinitely is the escalated shipping costs, where we have chosen as a strategic matter not to pass these rising costs along to our customers.

Of the 182 basis point decline in gross profit margin in Q1, higher shipping costs represented about 20% of this.

That said, since January, we have been in an over-inventory position and it will take us at least through Q2 to work through that.

And the revamping of our merchandising strategy, which by definition has a degree of experimentation to it, will continue.

So gross profit pressure will continue into the back half of the year.

As a result, for U.S.

retailing, Q2 is likely to look similar to Q1 in terms of broad trends and year-over-year OIBDA decline.

We really have a two-part plan to improve the financial performance here.

The fundamental plan is very much intact and it is the same one we have been pursuing since last fall.

Doug will elaborate on this, but I want to emphasize that we continue to believe we are headed in the right direction.

That said, we want to everything possible to address this short term while we are building to the long term.

This includes specific margin enhancement initiatives and operating cost reductions.

HSN's leadership is laser-focused on this as we speak, and while it likely will not affect Q2, we expect it to benefit comparisons in the second half of the year.

We got good performance in the other parts of our U.S.

retailing business, including Cornerstone and Shoebuy, and also a solid quarter in our German television shopping business HSE.

The other business which significantly affected our Q1 results was obviously LendingTree.

Doug will talk further about the dynamics here, but it is clear that the events in the subprime market have spilled over to other segments of the mortgage market, and virtually every element of this business has been affected.

While overall QF volume was up 17% and at a reduced marketing cost per QF, close rates were down on both the Exchange and in our own LendingTree Loans.

Moreover, the highest-margin products have been the hardest hit, with significant lender pullback or outright exit.

As a result, the business has become, at least for now, largely centered around conforming loans, which are the most competitive from a lender perspectives and hence the lowest margin for us, whether at the Exchange or at LendingTree Loans.

We do expect the business to increase its profitability from the Q1 level over the course of the year, but market conditions make giving any specific financial outlook very difficult.

To the good news -- Ticketmaster, Interval, ServiceMagic, Match and our media and advertising businesses all had strong quarters.

Talking about media and advertising for a second, we saw 43% revenue growth in the quarter and 48% growth in operating income before amortization.

Ask U.S., Fun Web Products, Citysearch and our syndicated sponsored listings business all posted very healthy revenue gains.

Profit growth was aided by the fact that it was a reasonably light quarter in terms of Ask.com marketing as we prepared for a new second-quarter campaign and product launch.

With an expected major advertising for Ask.com commencing in Q2, we expect only modest profitability in this segment in the second quarter, with profits likely down year over year.

I don't want you to read too much into quarter-to-quarter profit numbers in this segment, whether positive or negative.

Q1 being up sharply and Q2 expected to be down are indicative of our managing this business for the long term and not quarter-to-quarter profit performance.

Free cash flow for the quarter was $73 million.

This was down slightly from last year due to higher cash taxes, offset by certain working capital improvements and lower CapEx.

Q1 is always a light cash flow quarter for us, so this start is just fine.

And in response to profit pressures at HSN and LendingTree, we will double our cash flow focus Company-wide to ensure that we mitigate whatever the profit effect is on full-year free cash flow.

We did not buy any stock back since we last spoke with you on February 6.

As you know, we always look at all the current facts to see whether buybacks would be opportunistic.

But this past quarter, we didn't even get to that stage because we were in discussions regarding a corporate transaction, and for legal reasons it would have been imprudent to simultaneously be buying our own stock.

As it turned out, the transaction didn't come to pass, so we retain our significant excess liquidity, closing the quarter at $2 billion of cash and marketable securities.

And our goal of shrinking our capitalization remains intact.

Going forward, as we look at the second quarter, we expect Q2 to be more of the same.

As in Q1, declines at HSN and LendingTree, plus the marketing investment at Ask, will likely offset growth elsewhere, and we expect profits to be down overall.

We expect comps to improve in the second half of the year and to be growing overall again, but given the start we have had at this point, it looks overly optimistic to assume we will get enough growth in the back half of the year to deliver double-digit profit growth for the full year, and a low-single-digit growth rate looks more likely.

While this is disappointing, we also recognize that we have specific challenges at HSN and LendingTree, and when we address those, the numbers will follow.

Notwithstanding these current challenges at those two businesses, we are obviously making the strategic choice not to gut our other businesses, which are doing well.

We think throwing the baby out with the bathwater would be dumb.

When we step back from the current consolidated results, we see a number of businesses that are doing well and we remain convinced of the long-term potential and fundamental asset value at HSN and LendingTree.

While we manage our current operations, we are simultaneously making investments in a number of programming and other areas that we think will provide growth for years to come.

While the short-term tally isn't where we want it to be, we're more than optimistic longer term.

With that, let me turn it over to Doug for some additional comments.

Thanks, Tom.

I will take just a few moments to go a bit deeper into the businesses and give you some texture to the results.

Overall, this quarter reflects what we talked about a few months ago -- very solid performance in most of our business mixed with ongoing challenges at HSN and LendingTree.

At HSN, the turn in the business is taking longer than we would like, but there are continued signs of progress.

At LendingTree, the challenges are related to a broader mortgage market, and we are facing them head-on.

I will start with retailing.

We had good result from our catalogs and Shoebuy businesses.

But at HSN, the financial results this quarter are frankly not what we expect, particularly on OIBDA, as Tom described earlier.

That said, we are cautiously encouraged as the HSN team continues to make progress against key initiatives in turning the business.

For example, we're bringing lower price point items to the market in an effort to attract new customers for HSN, and we're upping airtime for these items.

Over a third of total airtime went to products priced under $50, up more than 5 percentage points from last year.

We revamped our spring fashion week, incorporating different trends and merchandise each evening, with an editorial style presentation, a runway and a celebrity guest stylist.

The format was a hit.

Viewership grew over the course of the week, new customers were up 25% from last year's week, and customers were buying 12% more than last year.

Our new 6000-square-foot outdoor set was unveiled this quarter and is the first of its kind in the industry.

This will enable HSN to present the full spectrum of outdoor lifestyle products.

Importantly, this will include some of the great Cornerstone products that we have, particularly at Frontgate.

We are beginning to see real traction on HSN.com.

Traffic is up over 30% from this time last year, with the majority of the growth coming from better use of direct referrals on the air and email-generated traffic.

And the site is becoming an even better contributor to total sales mix of HSN and is approaching one-quarter of overall sales.

There's clearly a lot of change happening at HSN at once, and we're mindful of introducing everything in a way that is comfortable for the consumer.

New products, different packaging, graphics and sets all take time to gain tractions with customers.

We continue to see great days, good days and bad days, and expect that this will be the case for the next quarter or two.

While this quarter's results don't quite bear out the progress we see in the business, it is very much our hope and expectation that the path we are on is the right one.

At LendingTree, margin compression in the mortgage industry caused major changes to our financial picture.

Subprime, option ARM and home equity loans, particularly those with the high loan-to-value ratios, all saw liquidity tighten considerably.

In many instances, investors simply stopped buying any loan that isn't conforming, meaning within the guidelines of Fannie Mae and Freddie Mac.

Thus, the average margin per loan sold at LendingTree Loans decreased significantly.

LendingTree Loans thus shifted away from originating these products and is in the process of changing to a lower-cost, mostly conforming mortgage platform.

Additionally, some lenders on LendingTree's Exchange also stopped taking consumers that fell out of those conforming guidelines.

We saw transmits rates, which is the percentage of consumers we can match with at least one lender, fall in refinance leads from 90% to 87% this quarter versus last year, and transmit rates on purchase fell from 76% to 57%.

Additionally, because fewer products were available for consumers, we saw our close rates fall 14% for refinance, 9% for home equity and 5% for purchase on the LendingTree Exchange.

The good news is that LendingTree's success in advertising and marketing continues.

Qualification form volume grew 17%, with over 1.1 million home loan qualification forms.

And our cost to get each lead declined 21% compared to last year.

We have been proud of LendingTree's ability to keep its cost structure flexible over the past year.

However, we clearly have to do more.

The fact is that the market has changed, margins are lower, and we need our costs to be in line with the new realities.

We're looking at every cost in the business and believe that as we bring costs in line to the current market, the fact that we have a great brand with lots of high-quality lead volume will enable us to continue to grow share.

In real estate, the business is showing early traction.

We launched new capabilities on the website, with expanded listings coverage in 46 markets, integrated with maps, home valuation tools, and showcased around a great new design.

We have over 2 million MLS listings on the site, which is among the highest on the Internet and up 30% since the first quarter last year.

In contrast to the trends at LendingTree, revenue grew 16% year over year, and close rates are up year over year at both the broker and builder networks, though admittedly working off a smaller base of leads in these channels.

At our Company-owned brokerage, we had a solid quarter, launching four new markets and adding 150 new agents.

We also named Bret Violette as the new President to run real estate and have split the business from its LendingTree roots.

We think this new structure will speed decision-making and give real estate the right focus within IAC.

Moving to Ticketmaster, which again posted great results for this quarter, we began the year with uncertainty over the event pipeline, given a tough comp to last year.

But at the quarter progressed, we saw record worldwide ticket volumes yet again and our team delivered an outstanding top-line quarter and solid OIBDA growth.

The best metric of success at Ticketmaster continues to be our client retention.

In this quarter, we retained or signed 310 accounts and lost only six.

We're also pleased with the ongoing traction in the auction and ticket resale markets.

In just the past 18 months or so, we have gone from these being essentially an insignificant factor to the results to a meaningful addition.

This quarter, seven national tours enabled TicketExchange for the majority of their event dates, including the Red Hot Chili Peppers and The Police.

Success begets success in this area, as acts and clients see the early adoption benefits for themselves, their fans and their customers.

We ended this quarter with close to 200 venues participating in TicketExchange, up from just five a year ago, and we have added more than 80 since the end of the year.

We also sold nearly four times the number of tickets in auctions this quarter as compared to last year.

Again, we started this from a very modest base, so growth rates should continue to be strong as we see more events agreeing to participate.

National tours enabled for auctions yield higher revenue per ticket, and we'll enjoy solid revenue growth from here for some time to come.

Rounding out our results in the transaction sector, ServiceMagic delivered a great quarter with 55% revenue growth and 6 points of margin expansion to 29%.

The business continues to gain scale and operating efficiencies.

We now have over 50,000 approved service providers in the network and added 24% more service providers this quarter versus the same time last year.

We told you one of our goals was to better monetize existing customers, and this happened on both sides of the business.

Customer repeat use is up 71% over last year, and average spend per service professional is up 26% over the last period.

Shifting to membership, at Interval, we had another solid quarter, with balanced top line and OIBDA growth.

We introduced a modest increase in fees this quarter, but maintained mid-single-digit growth in members and confirmations, reflecting the great leadership running this business and our solid relationship with clients.

Confirmations continue to migrate online, with a full 25% now occurring via the site.

Match again achieved double-digit growth in revenue and OIBDA, due in part to a 9% increase in average revenue per subscriber domestically, driven by the price increases.

Overall subscriber growth is less than what we have achieved in other quarters, but this reflects a combination of the price increase from December and more targeted use of our marketing dollars at the end of the quarter.

In this business, there is a strong relationship between price and subscriber growth.

And while we certainly could grow the base faster, it would be at the expense of overall revenue and profit growth.

It's all about striking the right balance, and we know that we will continue to be a sharetaker in this industry and throughout the world.

We're also excited that Match's former COO, Thomas Enraght-Moony, will be leading the business even as Jim Safka transitions into building a new ventures entity for us.

Wrapping up with media and advertising, we continue to believe that revenue growth is a priority.

And so obviously, the 43% increase in revenue this quarter is just terrific.

The revenue reflects a continuation of the trends that we have seen for some time -- query growth, higher revenue per query, strong growth in network properties driven by syndicated sponsored listing, and ongoing growth in consumer applications.

We have plenty of powder in the keg and are extremely excited about the launch of the next-generation algorithm in our search.

Called Edison, it upgrades the capabilities of Teoma and DirectHit to do much more with the social aspects of relevancy in queries, going deeper into user traffic and communities to calculate the authorities within a given area and provide a much better search result for the user.

Fun Web Products continues to grow rapidly and was a key contributor to OIBDA growth this quarter as the toolbars downloaded had a higher quality of traffic this quarter and better overall monetization.

Finally, I will close with a few points about our ongoing integration efforts across IAC.

We laid a significant foundation last year, and this year we are focused on a number of discrete initiatives.

Our cross-Company business development efforts are focused on dozens of different priorities.

We are beginning to move people around the Company at an ever-increasing pace, having moved 104 in the past 12 months and an increasing amount in each of the past three years.

Our cross-Company design team has now completed site designs in seven of our businesses, and the new Citysearch and RealEstate.com sites are the latest work.

The businesses are working together to launch applications at Ask that you will see shortly.

Continued efforts to cut costs and work together on common platforms have saved us tens of millions of dollars since the efforts began in 2003.

Importantly, for a business that spends over $175 million in online advertising, we are collapsing our current CPM advertising buys onto a single ad-serving platform and expect that collaboration in online advertising can make us one of the most efficient purchasers of online advertising on the Web.

With that, let me turn it to Barry for some final thoughts before opening it up for your questions.

Good morning, everyone.

I think that today it is best to quickly go to your questions.

But first, as they say on The Today Show, this was a good news, bad news and good news quarter.

The bad first, which you already know -- HSN and LendingTree performed poorly.

The good, the rest of IAC, showed big growth.

And I think the other good is that nothing in the quarter pulls down my confidence that HSN is going to soon be a far better competitor.

And I also think that LendingTree is going to emerge from the poor mortgage cycle stronger than ever.

But beyond that, Tom and Doug have given a lot of detail to both the quarter and the trends.

The best thing for me to do is just to get on with your questions.

So let's begin.

Operator?

(OPERATOR INSTRUCTIONS).

Anthony Noto, Goldman Sachs.

This is actually [Jen Watson] in for Anthony.

We're wondering about your thinking regarding the optimal capital structure for IAC and what the primary reasons or obstacles are for not pursuing that structure now?

I don't think I totally understand -- I mean I understand the question; I don't know how I can respond.

The optimal capital structure for IAC is certainly to have enough cash resources for any contingency, and beyond that is not to be overleveraged.

And we were making some progress at that.

We have explained why at least one of the reasons was we couldn't even consider purchasing stock in this quarter.

Our intentions long term are quite clear.

We will be opportunistic about it.

But other than that, we're not going to comment on it, except after the fact.

So I think that -- if I take your question properly.

Yes, that does answer it.

Thanks.

Jeetil Patel, Deutsche Bank Securities.

Two questions.

Can you talk about the sustainability of the Ticketmaster growth?

It is looking pretty good at mid-20s and probably some upside from the venues or tours being stronger than expected.

Do you think this business has the capability of maintaining a 15% to 25% growth rate as we look at this year and the event calendar out there?

And second, as you look at your retailing business, do you think it's a bigger priority for you right now to try to manage the cost structure down versus try to grow the top line -- I guess if you look at the priority in the near term, or first, what is the priority as you go forward over the next several quarters?

Tom, why don't you take the first question and then I'll come back to HSN.

I think I feel like I have been singing this same tune for it would have to be years now, if you go back to my prior stint at Ticketmaster.

But I think we directionally feel that very strong growth, both top and bottom line, at Ticketmaster is sustainable, that we have enough growth drivers in terms of our balanced presence domestically and internationally entering new markets, and we're not done there, new products, new services, winning more than our fair share of clients -- and there's always clients to gain; no matter how many we have, there's always more to go get -- new revenue streams, new businesses, etc., that there's enough kind of oars in the water, and as long we execute well, and we have for a long period of time, we should outgrow the market by some degree.

Now, we have had a favorable market.

It was favorable last year -- focusing on our biggest market, which is North American music -- and it was favorable, again, at the beginning of the year.

So I would never say that the type of top-line growth we posted in the quarter -- we love it, we will take it when we can, and sometimes the wind is at our back and we will go with it.

I don't think that magnitude is sustainable, but certainly double-digit growth, certainly faster than the market.

It will be a nice mix of top and bottom line.

And the drivers remain intact.

On HSN, I think it is a mix of many things.

I mean, we are making investments and have been making investments, and that is where you see the results for this quarter.

And it will last for some time longer, hopefully not the whole year.

We are making investments to grow the top line.

And of course, relative to the bottom line, we are I think prudently dealing with the cost structure of HSN while we go through this period.

We want to have our expenses other than the initiatives that we're putting forward in various parts of HSN -- these initiatives are designed to make the business more competitive.

And the results that come from that, we're waiting for -- we're waiting for the top line to start gaining momentum.

Many of the seeds have been put in place already.

And much of the work -- not all the work, of course, but the ground tracks have been laid.

And I think as we go through the year, I think we will see the grip begin to take hold.

And quick follow-up -- when do you think you get back on track in the L.A.

market from a distribution standpoint?

Tom?

Time Warner is our partner there.

And because of very unique facts and circumstances which is there, acquisition of Adelphia in that markets, we have worked with them kind of collaboratively -- not that we wished it, but we accommodated, I guess is the best way of putting it -- a temporary loss of approximately 1 million homes while they rationalize their systems and go through some of that post-merger stuff.

We will come back.

It will either be in the very short term or sometime into next year, and there is a range there, and anything is possible within that time frame.

But it is temporary.

It hurts us a little bit.

It's not dramatic, because it is only a million homes.

And again, it was a very unique set of facts and circumstances, and we accommodated their needs there because of the acquisition.

Doug Anmuth, Lehman Brothers.

Can you provide some details on the comment you made regarding the corporate discussions?

And then secondly, can you give us some kind of update on the timing related to Ask and the search deal, which expires at the end of the year?

The first question, no, we can't, for, I would hope you would all understand, understandable reasons.

On the second, we are in discussions with everybody.

The Ask/Google expiration at the end of the year -- I think we will be way ahead of it in terms of solidifying what our future is going to be.

And that is about all we can say about it right now, other than I am kind of certain it will be done by summer.

Can I just follow up with one thing on HSN?

We're seeing a re-acceleration in certain parts of e-commerce, in particular at Amazon -- very strong growth.

So I'm curious if you think the HSN challenges are more company-specific or is it possible we're seeing a bigger trend here that is shifting in terms of how people are purchasing from the home?

I don't think that we're seeing a shift.

I think we are going to over a long period of time -- long period of time, probably the next three years, five years.

I think we will see more and more online purchases.

I think that HSN and our competitors on air are going to have higher percentages online as the broadband continues to expand and this convergence of pictures, video and data continues its convergence.

So I think the shift is inevitable.

But I don't think that the issues for on-air are yet, so to speak -- I mean, the issues -- what will happen to the on-air is going to be compromised in terms of its ability still to be a vastly significant area of commerce.

Imran Khan, JPMorgan.

This is actually [Bridget Weischar] in for Imran.

A quick question on Ticketmaster -- the revenue growth was fantastic, but it looks like the margins dipped a little bit, and you said it was due to international investments.

How do you see the OIBDA margin progressing through F'07?

There were a number of factors in the quarter.

It was a bit of an unusual quarter.

We skewed much higher in music than traditionally in Q1.

I think we were up multiple percentage points in music as a percentage of the mix.

And while music is very profitable and as or more profitable on a per-ticket basis, on a percentage basis it is lower because of the rebate rates and the pricing.

So when music skews high, we tend to get higher revenues per ticket, but the percentage margin doesn't necessarily come through.

So that was part of it.

Part of it was faster growth internationally, where we do operate at slightly lower margins, not dramatically lower.

And then, we continue to make very substantive investments in product, technology and services for our clients.

It is directly related, and this has been kind of the formula -- each quarter it adds up a little bit differently, but the formula over the last several years has been constant innovation in the delivery of quality products and services to our clients on one side and the consumers on the other.

And that is what allows us to grow faster than the market.

So what we tend to do is manage the business on a OIBDA growth basis.

We want solid double-digit OIBDA growth over time.

Each quarter will be a little bit different, and if investments can help us get there, but the percentage margin is a little bit lower, that is fine.

The real focus is on that percentage revenue growth.

So I think going forward, I don't see any broad margin pressure issues.

We are not managing for margin expansion per se.

But I think the margins should be reasonably stable, although in any given quarter, they can jump around.

(OPERATOR INSTRUCTIONS).

Justin Post, Merrill Lynch.

First if we could start with Ask, I'm wondering if you could talk about the core query growth on Ask.com and how much you got helped by Google's monetization efforts, if you could help us out with that.

And then obviously, bigger picture, underperforming your OIBDA growth targets this year with the new outlook -- how do you feel or what do you think are the key drivers that's going to get you back to a double-digit level maybe in '08 or by '09?

What are the key areas we should be watching for?

I will take the second, and Doug, why don't you do the first.

In terms of Ask, RPQ was definitely helped significantly.

However, that is a combination of factors.

One is it is clearly Google helping revenue per query increase, but it's also, as we alluded to in the comments, much more specific mix shift, particularly in our proprietary areas, which include Ask U.S.

and UK, and Fun Web Products, where we are getting a higher percentage of commerce queries versus sort of research queries, which tend to monetize better.

So we're seeing very solid revenue per query growth.

We are also seeing very solid query growth, up high single digits on the proprietary side, and on the network side doing very, very well as well.

So solid growth on both RPQ and on queries.

On growth, we have two problems -- HSN, which we have talked about, and LendingTree and its cyclical situation.

We think they are not going to get fixed overnight.

We think that the second half is going to be stronger than the first half.

We think we will return to double-digit growth, certainly as we get into '08, would be absolutely our expectation.

Other than the two issues that we have, everything else, if we -- you can't obviously exclude them, that's silly, but you can simply explain them -- but other than the cyclical LendingTree, which I absolutely believe all the things that we are doing is going to make us emerge from -- the cycle will change and it will -- we will emerge stronger.

HSN, good work is being done and good results will out.

Everything else, as I said, is performing quite well.

So certainly, we expect double-digit -- can't put it in exact point in time, but there it is.

Mark Mahaney, Citigroup.

Two quick questions.

First, the Match subscriber growth of 1% year over year seemed unusually low.

Any color on that?

Is it reasonable to expect that that growth would reaccelerate?

And just in the ticketing business, in order to think about what the growth will be like through the balance of the year, how big of a tour event is The Police relative to other events?

Is this the biggest event you would have seen in the last year and a half?

Is it like Harry Potter is to the bookselling business?

On your first question, if you go back to 1999, we bought Match.com, and over that period, there's many -- I don't know the number exactly, but there have been many, many periods where sub growth has flattened out.

And that is essentially what happened -- domestic subs were down a little bit, but essentially flat, close to flat.

And that happens for while and then we find new innovation.

This is a business that is a periodic consumption business as much as it is subscription, because people come in and out of the service.

Repeat users are a very high percentage of our revenue mix now -- they come, they leave, they come back.

And it responds to product innovation, it response to marketing, it response to distribution.

So when we look through the drivers of why we got sub growth leveling out domestically this quarter, there's a number of things we could point to, none of which are structural or permanent.

We need to come back with creative marketing.

We need to come back with product innovation.

We need to look to our registration to conversion funnel and content and [SEO], and I can go on and on, and I won't.

And this has happened before.

And the business is bigger.

It still, it has, relative to the -- I think the last number I saw was 80 million singles just in the U.S.

who are open to a relationship.

This category is still very underpenetrated and there is still plenty of opportunity, but we expect it to come in fits and starts.

And in the meantime, we had pricing, as Doug mentioned in the quarter -- we are going to optimize that by market so we're going to look at some of the smaller markets where we may have gone too far and step that back while leaving it in place in the bigger markets, and at the same time, continue to invest internationally.

So we think longer term, we will be fine.

And it is just one of these things.

I'm sorry, your second question was The Police.

I don't have the figures off the top of my head, but there was nothing that jumped off in this.

Our business has always been shockingly balanced.

We have thousands of events that sell every quarter and the top five events usually comprise a reasonably low percentage of the total tickets.

This is not the book business.

Heath Terry, Credit Suisse.

When you look at growth in the ticketing business, can you talk about the breakdown between price and volume that you've seen there and to what extent that you feel like price is a source of growth in Ticketmaster going forward?

It has been -- and again, this has been reasonably consistent -- each quarter is a little bit different story, but it has been a very good balance.

Our tickets were up, unit volume in the first quarter, were up 15% and pricing was up approximately 10%.

So both of those were big.

And as I said earlier, we don't count on those quarter in or quarter out, but this general -- both being material drivers, both being contributors, have been the pattern for a while.

We don't try and manage the business or count on in the future big pricing.

We take it when we can get it.

When we work with clients on renewals, we look for value-added ways we can push pricing up.

And ultimately, over the long term, we think it's going to correlate with event pricing, which has tended to continue to go up -- not on a short-term basis, but over the long term as live entertainment events continue to rise in price, most likely our pricing well as well, although we really try and manage the business so that we can drive real revenue growth from the volume side first, because we feel like that, we can control, that and new products, and whatever pricing we get is gravy.

Robert Peck, Bear, Stearns.

Barry, I was wondering if you could talk a little bit about the Ticketmaster lawsuit with eBay and what particularly the issue is there.

And then number two, there has been, bigger picture, a lot of strategic acquisitions that have taken place across the search and advertising space.

Could you comment on your view of acquisitions and where there may be holes in the portfolio going forward?

Relative to eBay and really StubHub, so -- StubHub is now eBay -- the lawsuit is very simple, which is that we believe that they infringed on our relationship with our contracts.

That is the basis of it, and we feel fairly -- not fairly -- we feel strongly about it.

So that is that on that point.

And the second -- sorry, what was it?

It was on strategic acquisitions in this space and where there could be holes in the portfolio for IAC going forward?

I don't think there is a hole in the portfolio.

I think we have got a big portfolio and we have a ton of internal initiatives.

And we are involved, as we always are, in explorations of acquisitions -- nothing of huge size.

The largest is probably about $500 million.

But they range from tuck-ins, very little, $10, $20 million, something like that in terms of investments, to low 100s.

But other than tuck-ins and areas where we do see some opportunity, there is no hole there.

And we don't have big eyes for acquisitions.

Of course, I always have to say around the corner, something could come, but I certainly don't see it.

Kevin Kuzio, Dwight Asset Management.

Because the stock buybacks are such an important part in my thinking about our investment here, I hope you will forgive my going back to the corporate transaction comment just to help me understand what that could incorporate.

I'm curious if you could maybe say whether it was more inside-looking, kind of organizational, or perhaps a revisit of an Expedia-like tender that was considered and rejected before versus outside-looking M&A activity or something like that?

Actually, I can't, and it's not that I want to be mysterious about it, but because we spent some time on this, and it was material, and we may revisit it again, and we don't know when that will be, I just can't -- I can't put it in any category.

So there's nothing I can say about it.

And at this time, we have no further questions in queue.

I would like to turn the conference back to management for any concluding comments.

Please go ahead.

Thank you all very much.

And we will of course be with you next quarter.

Good day.

Thank you.

Ladies and gentlemen, that does conclude the IAC first-quarter earnings conference call.

We thank you again for your participation today, and you may now disconnect.